One of Europe's most famous airline CEOs just made some chilling predictions about the effect of a hard Brexit

As the prospect of a hard Brexit looms,
Ryanair CEO Michael O'Leary made some dire predictions about its
effect on UK airlines.

When asked about a hard Brexit during the Irish low-cost
carrier's latest earnings call, O'Leary replied that while it's
still two years away from happening, the expected effect on his
airline will not be substantial.

Ad

But, the chief executive warned that his UK rivals may not be so
lucky.

(A "hard" Brexit means that the UK would make a clean break from
the EU and fully relinquish its access to the European single
market. In that case, the UK's economic relationship with the EU
would fall under World Trade Organization rules until individual
trade agreements can be negotiated.)

"However, the impact on our competitors, particularly our UK
competitors, will be much more severe," O'Leary said.

Ad

"For example, EasyJet has about 40% of its capacity operating on
intra-EU routes and we would find it difficult that a UK
registered airline would be able to operate intra-EU routes in a
hard Brexit scenario."

caption

Passengers leaving a Ryanair Boeing 737 at Modlin airport near Warsaw

source

Thomson Reuters

EasyJet
is the UK's largest low-cost carrier and Ryanair main rival for
dominance over British skies. O'Leary's comment stem from the
potential regulatory limitations UK airlines such as Easyjet and
British Airways will face if Britain makes a clean break from the
EU.

As part of the EU, UK airlines can operate flights around Europe
without limitations. However, in a hard Brexit, UK airlines
operating flights inside Europe would be seen as no different
than one from China or the US - should a UK/EU open skies
agreement not be reached. As a result, there could be severe
limitations on access to routes and markets in which UK airlines
are currently major players.

Representatives from Easyjet were not immediately available for
comment on the matter.

O'Leary's predictions for International Airlines Group - the parent
company of British Airways, Iberia, and Irish national airline
Aer Lingus - is even more dire.

"I think the shareholder structure of IAG becomes untenable in a
hard Brexit," the Ryanair CEO added. "British Airways cannot be
owned by the same shareholders as Aer Lingus and Iberia and I
think it would lead to the breakup of IAG should a hard Brexit
emerge in two years time."

source

REUTERS/Eric Gaillard

Even
though IAG's operating headquarters is in London, the company is
actually registered in Spain.This arrangement has worked well for the company, which
formed in 2011 after the merger of British Airways and Spain's
national airline, Iberia.

Foreign-ownership restrictions for airlines are customary
around the world. The US limits foreign ownership to 25%, while
the EU's cap is at 49.9%. Because British Airways is now 100%
owned by an EU company, IAG may be put in a position in which it
will have to divest its holdings.

However, IAG doesn't seem particularly bothered by the
Brexit. At least towards the public and the press, the company
has remained steadfast it is stance that the Brexit will not have
a major effect on its business.

On Monday, an IAG spokesperson reiterated the same stance
in a statement to Business Insider which read, "IAG has
said, on many occasions, that in the long term Brexit would not
have a significant impact on our business."

Ryanair reported a $1.29 billion profit for the first half
of 2016 with net margins up 1 point to 28%.